How Does Copy Trading Work?
Some Forex traders spend hours monitoring the market. Others make a few trades during the week. Whatever your strategy, you may lack competence or time. Mastering Forex is not easy. Fortunately, there is a way to delegate decisions to a seasoned expert. But how does copy trading work in South Africa?
The Concept of Copy Trades
Millions of people trade currencies, stocks, and other instruments through the Internet. In this vast global community, you can find experts who will invest a portion of your money for a fee. Famous brokers compile ratings of strategy managers. Choose your expert and have their strategy replicated in your account.
The rankings are based on stringent criteria. Brokers look at average performance, win-loss ratio, risk tolerance, etc. As a result, clients easily find traders whose style matches their own.
Select your strategy manager, and the broker will connect your accounts. Any current positions and trades they make afterwards are replicated. In essence, this is trading by proxy. You can monitor performance in real-time — traders do not relinquish control of their accounts.
Copy Trading Example
Usually, brokers allow clients to delegate a portion of their balance. Suppose a copy trader makes successful decisions resulting in a profit of $500. Their commission may constitute 10%, which is $50. The remainder ($450) goes into your account. The size of the fee depends on the broker. With Forextime, there are just a few stages:
- Look through the rating on your brokerage site.
- Choose the strategy manager.
- Sign up for the service.
- Fund your account if necessary.
- Monitor the expert’s performance.
- Collect profit and share a percentage with the copied trader.
As you can see, experts are incentivized to make lucrative trades. Otherwise, they do not receive a commission. There are no contracts or definite duration. The connection may be terminated at any moment.
Not Only for Beginners
You may suppose that copy trading is only popular with beginners. This is a misconception. Even seasoned traders may copy others from time to time. The system helps them continue making money even when they have no opportunity to analyze the market properly.
Overview of Regulated Brokers
Copy trading is a major competitive advantage for brokers. However, do not forget to check the legal status of the company. In South Africa, Forex scams are widespread. Choose providers licensed by reputable entities like the FSCA, the FCA in the United Kingdom or the CySEC in Cyprus.
Other Ways to Improve Trading Results
It is tempting to delegate the entire Forex trading action to other people. Be reasonable, as human error is not impossible. Besides, even the most reliable strategy may backfire in highly volatile markets.
Force majeure events disrupt the most solid planning. Therefore, do not just delegate and sit on your hands. Keep an eye on your experts’ performance. Check if their actions are profitable.
Forex Traders or Robots?
Forex traders have other opportunities to make money passively. Instead of delegating to a human, you may delegate to a piece of software. Features called Expert Advisors are integrated into popular platforms like MetaTrader 4. Such extras may be bought or rented. They can analyze the market and even trade on your behalf.
However, EAs do not guarantee results. They are not created equal. Any company advertising robots as flawless assistants is lying. As you can see, there is no way to trade passively with guaranteed results. The analytical capabilities of EAs are more powerful than the human mind. Still, force majeure may also cause disruptions.
- This is a system of delegation: you connect to a strategy manager whose trading action is copied into your account.
- Strategy managers are paid a fee, which is a portion of the total profit.
- Copy-trading services are offered by regulated brokers in South Africa.
- Clients choose managers using ratings on the provider’s site.
- You can monitor the progress easily and cancel separate trades.
- Copy others as long as you need — there are no contracts.
Now you know how copy trading works. Like EAs, it does not give 100% guarantees as the market is not fully predictable. Still, Forex pros are more likely to make the right decisions. For them, it is an opportunity to share their knowledge for a fee. Eventually, as you become an expert yourself, you could allow other traders to copy you.